General Meeting: Dennis Stevenson speech
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Dennis Stevenson, chairman of HBOS, explained to shareholders why the rights issue is taking place. |
The various documents we have sent to our shareholders set out in huge detail why we have thought it right to launch a rights issue. We have also released an updated trading statement. However, there has been so much speculation about both of these issues that I thought it might be appropriate and helpful if I explained in my own language exactly why your Board has thought it right to proceed with the rights issue.
I was asked by a fellow shareholder outside why we felt the need to raise capital. She was very well informed, pointing out that the Company already has a strong balance sheet, which indeed it has. And so she was a little unclear about why the Board thought it necessary to raise more capital.
It's a good question. And the short answer is very simple - old fashioned prudence. None of us can predict the future but as your Board reviewed the world two months ago - we concluded that the world economy - and within it particularly the UK economy - could be in for a far bumpier year or two than most commentators had foreseen even six months ago. So our first motive for increasing our capital has been to ensure that our business can confront the much more volatile world ahead with a stronger balance sheet.
"Your Board remains optimistic about the fundamental prospects for the Group's core businesses."
Dennis Stevenson, chairman of HBOS
Another rather technical reason influenced the decision. As a result of the changes arising from the Basel II regulatory system, we along with other banks within the new Basel II regime, can be predicted to experience greater volatility in our capital requirements than in the past. In addition, we have taken substantial fair value adjustments on our profit and loss account and our balance sheet recently. Although no so-called credit impairment provisions, as the accountants say, have been required, at least some of these adjustments do impact our capital.
The final reason for seeking to improve our capital position is to enable us to consolidate our strengths in our core markets. Your Board remains optimistic about the fundamental prospects for the Group's core businesses. And we anticipate relatively stable, and potentially improving, margins in 2009. The enhanced capital position will enable us to pursue our strategy of consolidating our leadership position in residential mortgages and savings; delivering measured and selective high value corporate growth; continuing to grow strong in Insurance & Investment; and investing in targeted International growth.
So the decisions on which we are voting today, including of course the decision to capitalise the interim dividend, have not been lightly taken. Despite strong performance ever since HBOS was founded in 2001, over the last 9 months, the HBOS share price has fallen significantly. Inevitably, launching a rights issue in a market where sentiment to the banking sector has been very negative has compounded this. The Board is well aware that launching a rights issue is not a way to win a short term popularity contest. However, you should be quite clear we have done it because we think it is the right thing for the business.
There has been so much speculation about all the banks and their various capital ratings, ourselves included but I thought it right to explain to you why we are doing it and I hope it has been helpful.
There has been an equal amount of speculation about our current 
trading. The keen readers among you will have seen that in our trading statement we said that our trading was satisfactory.
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Results of General Meeting - 26 June 2008 |
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